Florida Court Gives Parties Assigned a Subrogation Claim a Math Lesson

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Although the focus of most subrogation cases is usually on proving liability, determining the appropriate measure of damages is just as important. Sometimes turning on a nuanced argument for recoverability, an adverse holding can significantly boost or reduce the total damages in a case. The Court of Appeal of Florida, Fourth District (Court) recently decided such an issue in a case involving subrogation, holding that the defendants owed much more than they originally anticipated.

In Five Solas v. Ram Realty Servs., No. 4D19-2211 2021, 2021 Fla. App. LEXIS 7546, the Court reviewed the appropriate setoff in damages that the defendants were entitled to when measuring the recoverable damages. The Court reversed the lower court’s holding, which held that the defendants were entitled to a setoff that limited the jury’s award to $104,481.75. Instead the Court held that the defendants were only entitled to a setoff equal to the excess recovery over replacement cost.

The case involves, among other things, property damage sustained by building owner Five Solas (Owner) and its lessee William Price, P.A. from a collapsed wall originating from the property of the defendants, Ram Realty Services, LLC and Sodix Fern, LLC d/b/a Alexander Lofts (collectively referred to as Defendants). Owner’s carrier, Foremost Insurance Company (Foremost), paid out its policy limit of $430,518.25 to Owner for damage to the building. Owner then pursued its claim against the tortfeasors for the remaining damages not paid by its carrier.[1] Foremost also pursued a subrogation claim, but settled its subrogation claim with Defendants, assigning its subrogation rights to Defendants.

Owner’s case against Defendants went to trial and the jury determined that the replacement cost of the building was $943,829.00 and the fair market value of the building – the amount tortfeasors are responsible for – was $535,000.00. After the verdict, the trial court subtracted the amount Foremost paid to its insured ($430,518.25) from the jury’s fair market value determination ($535,000.00) to reach a judgment of $104,481.75, to be paid by Defendants. Owner then appealed arguing, among other things, that it was entitled to be made whole and that Owner should reap “the benefit of its bargain” in contracting for a replacement cost insurance policy.

The Court found that since Foremost paid Owner for constructing a new building and not the fair market value of the old building, the two measures of damages were different. Recognizing that Plaintiffs were entitled to be made whole before Defendants – as assignees of Foremost – could pursue a subrogation claim, the Court held that Defendants were only entitled to a setoff related to the subrogation claim for any amounts that exceeded the greater of the replacement costs allowed and the fair market value of the building. In this case the greater of the two measure of damages was the replacement cost, $943,829.00.

Because Defendants were only entitled to a subrogation setoff for payments in excess of the amount needed to make the insured whole, the Court found that the setoff should have been limited to the combined amount received from the tortfeasors ($535,000.00) and the amount paid by the carrier ($430,518.25) that exceeded the total replacement cost ($943,829.00): the sum of $21,689.25. Thus, the setoff was $21,689.25. Given that the Court states in its opinion that Defendants should pay the fair market value of $535,000.00, it would be consistent for the lower court to render a judgment against Defendants for Owner’s building damages claim – after setoff – in the amount of $513,310.75, rather than the $104,485.75 as determined by the trial court.

Even though this case does not deal with a subrogation matter directly, it involves the effects of subrogation payments and highlights damages issues that can be crucial in subrogation cases. Because the Court found that Owner was entitled to the benefit of its bargain for replacement cost insurance, it essentially viewed the damages valuations in separate categories: what is legally recoverable and what is contractually recoverable.

The contract with Foremost was not for what the owner was already entitled to, but for replacement cost. Thus, while Defendants were certainly free to settle with Foremost, and Foremost was free to assign its subrogation rights to Defendants, those rights had no bearing on the measure of damages for the legally recoverable amount Defendants would owe. The assignment of Foremost’s subrogation claim would, however, affect the amount of any setoff calculation made by the Court associated with the assigned subrogation claim. In this case, because the jury found that the replacement cost was the greater of the two measures of recovery, Defendants were only entitled to a setoff based on the amount that the replacement insurance payment and the amount received from Defendants exceeded the total replacement cost.

This case is important as it showcases how damage issues can have huge swings on the value of a case, regardless of a strong theory of liability or even a favorable verdict. While this particular swing was beneficial to the plaintiffs in this matter, damage holdings can have dramatic swings in both directions. Thus, it is important for subrogation professionals – particularly those who are also representing the insured’s interests – to look at state specific damage laws as early in the life of a case as possible.

[1] Although William Price, P.A. also pursued damages, the discussion of its damages is not relevant to this post.

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